Reverse Mortgage Cons:
1. (PMI) Mortgage Insurance – Any time you do an FHA loan, you will have mortgage insurance. This insurance is there to protect you in the unlikely event that your home is worth less than what you owe on it. The only time this realistically happens, is when we go though a recession in real estate and property values drop. The good news is that you can never be kicked out of your home or forced to move, regardless of the balance. This is all thanks to the mortgage insurance.
2. Compound Interest – Everyone likes to earn it, no one likes to pay it. Simply defined, it is interest which is calculated not only on the initial principal but also the accumulated interest of prior periods. If you’ve ever had a savings account or investment that you rolled the earnings back into, you have likely earned it. Since you are not making payments on your loan, compound interest will add up.
3. Borrowing against your heirs’ inheritance – Some will say that you’re spending their inheritance. Whose money is it? I say, if you need it, you use it. Leave whatever is remaining to the heirs and not a penny more. No one is suggesting you waste the money, but use what you need to be comfortable.
The Pros of a Reverse Mortgage:
1. Maintain Your Independence – What could be more embarrassing than asking your kids for financial help to cover monthly expenses? Would you like to need to move in with your kids? You can use your home’s equity to make ends meet and keep your dignity.
2. The Ability to Keep Your Home – Not having to move potentially decades of collected items and memories might be the best reason to do a reverse mortgage. Just the thought of moving makes most people cringe. By taking advantage of a reverse mortgage, you can afford to keep the home you love while affording the retirement you deserve.
3. Life Becomes Affordable – So many seniors live in an impoverished state. They have gotten used to being broke. A reverse mortgage can allow you to access your equity and turn it into a lifetime income stream. What if you could get $200 or $400 or even more every month? You would probably feel like you’ve won the lottery.
4. No Mortgage Payments – There are no monthly payments, and you don’t have to pay back the loan as long as you maintain the home as your primary residence. This can really be helpful when times are tough.
Since fees are not a consideration for getting a loan, they weren’t mentioned above. The new programs available will allow you to (usually) waive any origination frees and possibly get a substantial credit towards your mortgage insurance. The reduction in fees is in the neighborhood of 50%, saving you thousands of dollars.
I have something to admit before we summarize. Yes, I am a reverse mortgage loan officer. I really believe that the best tool to help a senior homeowner is a reverse mortgage. They are not for everyone, and I know that, but I really cringe when I hear someone saying they are bad. There is no bad tool. It is the way you use the tool that makes it good or bad. After saving (paying down your mortgage) for years, shouldn’t you be able to use your equity to make your retirement better?
Now it is up to you to decide. Is this a tool that can help you or someone you know? Will your life be enhanced with a reverse mortgage? If you are still unsure and want more information, read more of our articles on our website.
David Prulhiere is the owner of Redwood Financial Services and he specializes in reverse mortgages. If you would like to read more about reverse mortgage pros and cons? You can also see other articles and blogs with additional reverse mortgage information.
